Subject: Corporate Finance

Chapter:Valuing bonds, Valuing stocks

Q. Bell corporation is expected to pay quarterly dividends (starting in three months) of $0.45 per share. The dividend amount is expected to remain constant for the foreseeable future. Given the risk inherent in Bell shares, the required expected return for investors is 12% per year (effective).

a) Using the dividend-discount model, what would be the price of one share of Bell stock?

b) What would be the price of one shares of its stock if the next dividend is in one month, not three months?

c) Say the next dividend is in 3 months, as in part a). If dividends are expected to grow at a rate of 1% per quarter, what would be the price of one share of Bell stock?